It is nearly impossible to have never heard of a second mortgage these days. Perhaps you’ve heard enough to start wondering why more people are getting a second mortgage or getting curious to know how getting a second mortgage may benefit you. We’ve compiled the answers to the most frequently asked questions regarding second mortgages here.
Are There Types of Second Mortgages?
There are several types. The most common ones are HELOCs and home equity loans. A second mortgage that is given as a lump sum is categorized under general home equity loan while one that is given as a revolving line of credit is called a HELOC.
What Collateral is Used?
The value that you own in your home, or your home equity, is the collateral used in a second mortgage. This means that not paying can result to foreclosure so you better be sure to read the terms before getting one.
What Are the Common Uses for a Second Mortgage?
Debt consolidation of high-interest debts and paying for home renovation are the most common reasons cited by those who apply for a second mortgage.
Are Interest-Only Payments Possible?
Yes, paying for just the interest on a monthly basis is possible for some types of second mortgages. This is a useful feature to look for when you’re planning to pay for the loan after getting an expected huge windfall or after you’ve sold the home.
How Can You Use Funds from a Second Mortgage?
Once approved for a second mortgage, you are free to use the funds however way you want. You can use it to invest in a business, invest on the home by paying for renovations, pay for expensive tuition fee, finance a lavish wedding or grand vacation, consolidate debt, and more.
Is There a Limit to the Amount That Can Be Borrowed?
Generally speaking, you may borrow up to 80% of the value of the home equity that you’ve built up. This means that if you have $100,000 home equity, you can access as much as $80,000 in the form of a second mortgage.
Are There Fees to Pay?
Besides the interest, you’re expected to pay certain fees depending on which of the types of second mortgages you’ve applied for. This is best discussed with a mortgage professional so you can have a better grasp of what fees you can expect and how much.
Are There Differences in Interest Rates?
The different types of second mortgages come with different interest rates. The biggest factor affecting this is the risk that the lender is taking by lending money to you. There are also instances that the same types of second mortgages will have varying interest depending on the terms set by the lender. For this reason, make sure to compare interest rates before finalizing your second mortgage application.
Do you have more questions about getting a second mortgage? Feel free to contact us so that we can address your queries. Our mortgage professionals will be happy to respond to additional questions you may have about applying for a second mortgage.